Statutory auditor liability: partner cannot avoid prosecution when the firm was not separately arraigned in proceedings

A partner of a firm appointed as statutory auditor can be proceeded against for failure to comply with investigatory obligations under the Companies Act, 1956, because the firm and its partners are not separate legal persons for that purpose. The note treats the auditor's appointment as carrying a duty to furnish information sought in the inquiry and states that signing the audit report while ignoring repeated summons supported liability. It distinguishes cases on corporate vicarious liability for directors and applies partnership principles that a partner acts for the firm, so the absence of separate arraignment of the firm did not defeat prosecution.

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Issues: Whether criminal proceedings under Section 240(3) of the Companies Act, 1956 could be quashed against a partner of a firm appointed as auditor of a company on the ground that the firm was not arrayed as an accused and whether the petitioner could avoid liability by claiming that he was not individually employed by the company.

Analysis: The appointment of an auditor under Section 226 of the Companies Act, 1956 was treated as a statutory appointment carrying corresponding obligations to furnish information sought in an investigation. The petitioner was found to be a Chartered Accountant and partner of the firm appointed as auditor, had signed the audit report, and had failed to respond to repeated summons and requests for information. The Court distinguished precedents dealing with company directors and corporate vicarious liability, holding that a partnership firm is not a separate legal entity distinct from its partners. Relying on the Partnership Act principles that a partner acts for the firm and is jointly liable for acts of the firm, the Court held that the firm and its partner could not be bifurcated for the purpose of avoiding the statutory obligation.

Conclusion: The petitioner remained liable to face prosecution and the request to quash the proceedings was rejected.

Final Conclusion: The criminal court's cognizance was sustained and the petition seeking quashing of the prosecution failed.

Ratio Decidendi: A partner of a partnership firm appointed as statutory auditor cannot evade prosecution for failure to comply with investigatory obligations under the Companies Act by contending that the firm was not separately arraigned, because the firm and its partners are not distinct legal persons and the statutory duties attach to the auditor so appointed.

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